Hong Kong/London (CNN) Markets in Europe and Asia recovered on Friday after First Republic Bank was rescued by a group of major US lenders, easing concerns about ongoing banking turmoil.
“Some optimism has returned to markets over the past 24 hours, with banking stocks stabilizing on both sides of the Atlantic,” Deutsche Bank analysts said in a note on Friday.
First Republic Bank (FRC) will receive a $30 billion bailout from a group of America’s largest banks, including JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (CBEAX), Citigroup (° С) and Truist (TFC).
The news reassured investors who had worried about a potential banking crisis following the collapse of two US banks and the maelstrom in Swiss credit (CSGKF) during the last week. U.S. stocks closed higher on Thursday, with technology shares rallying.
European shares posted gains on Thursday as investors were reassured by news that Credit Suisse will use a bailout offered by the Swiss National Bank, borrowing up to 50 billion Swiss francs ($53.7 billion).
The rally in Europe carried over to Friday, although gains were modest. The benchmark Stoxx Europe 600 (SXXL) the index rose 0.3% in early trade. of Germany DAX (DAX) and France CAC 40 (CAC40) rose by 0.4% and 0.07% respectively.
The Stoxx Europe 600 Banks index, which tracks 42 major EU and UK banks, also opened higher before trading flat by mid-morning. The index fell 13% in the week to Thursday’s close.
Banks in London are tough FTSE 100 (UKX) rose 0.6%.
But stocks in Swiss credit (AMJL) fell as much as 5 percent in early trading, eating into Thursday’s gains in a sign that investor confidence in the bank’s future has not been fully restored.
In Asia, Hong Kong Hang Seng (HSI) closed 1.64% higher, China Shanghai Composite (SHCOMP) gained 0.73%, the Japanese Nikkei (N225) increased by 1.2%, and South Korea Kospi (KOSPI) added 0.8% at market close. The gains followed larger declines on Thursday.
Chinese technology, property and financial stocks rose across the board. Baidu closed 14% higher in Hong Kong after some securities firms gave positive preliminary reviews of the company’s ChatGPT-like app.
Property developer Country Garden ended the day 7.7% higher as China’s property market showed early signs of recovery. Official data showed on Thursday that February new home prices rose for the first time since August 2021.
“Following the recent global financial volatility, First Republic Bank was expected to be the next domino to fall,” said Yeap Jun Rong, market analyst at IG. “But an industry-wide bailout to shore up the bank’s finances has provided some much-needed reassurance to mitigate further banking worries.”
Investors around the world held their collective breath for a week after the rapid collapse of Silicon Valley Bank and Signature Bank raised fears about the health of the global banking sector.
Worries deepened on Wednesday after Credit Suisse shares tumbled in Europe. Regulators on both sides of the Atlantic took emergency measures to bolster confidence, including protecting deposits at SVB and Signature Bank.
On Thursday, European stocks mostly ignored the European Central Bank’s decision to stick with its plan to raise interest rates by half a percentage point.
“This [rate hike] is good news against a backdrop of persistently high inflation,” wrote Ulrike Kastens, Europe economist at DWS, in a research note on Friday. “At the same time, it reaffirms its intention to intervene with liquidity measures if the stability of the financial market is threatened.”
Investors now await the Federal Reserve’s decision on interest rates next week. They broadly expect the US central bank to raise interest rates by 25 basis points.